diff --git a/changelog/unreleased/issue-3697 b/changelog/unreleased/issue-3697
new file mode 100644
index 00000000000..514f9d70864
--- /dev/null
+++ b/changelog/unreleased/issue-3697
@@ -0,0 +1,12 @@
+Enhancement: Allow excluding online-only cloud files (e.g. OneDrive)
+
+Restic treated OneDrive Files On-Demand as though they were regular files
+for the purpose of backup which caused issues with VSS, could make backup
+incredibly slow (as OneDrive attempted to download files), or could fill
+the source disk (e.g. 1TB of files in OneDrive on a 500GB disk).
+Restic now allows the user to exclude these files when backing up with
+the `--exclude-cloud-files` switch.
+
+https://github.com/restic/restic/issues/3697
+https://github.com/restic/restic/issues/4935
+https://github.com/restic/restic/pull/4990
\ No newline at end of file
diff --git a/cmd/restic/cmd_backup.go b/cmd/restic/cmd_backup.go
index b7eed13184c..42908557ed9 100644
--- a/cmd/restic/cmd_backup.go
+++ b/cmd/restic/cmd_backup.go
@@ -77,6 +77,7 @@ type BackupOptions struct {
 	ExcludeIfPresent  []string
 	ExcludeCaches     bool
 	ExcludeLargerThan string
+	ExcludeCloudFiles bool
 	Stdin             bool
 	StdinFilename     string
 	StdinCommand      bool
@@ -140,6 +141,7 @@ func init() {
 	f.BoolVar(&backupOptions.NoScan, "no-scan", false, "do not run scanner to estimate size of backup")
 	if runtime.GOOS == "windows" {
 		f.BoolVar(&backupOptions.UseFsSnapshot, "use-fs-snapshot", false, "use filesystem snapshot where possible (currently only Windows VSS)")
+		f.BoolVar(&backupOptions.ExcludeCloudFiles, "exclude-cloud-files", false, "excludes online-only cloud files (such as OneDrive Files On-Demand)")
 	}
 	f.BoolVar(&backupOptions.SkipIfUnchanged, "skip-if-unchanged", false, "skip snapshot creation if identical to parent snapshot")
 
@@ -347,6 +349,17 @@ func collectRejectFuncs(opts BackupOptions, targets []string, fs fs.FS) (funcs [
 		funcs = append(funcs, f)
 	}
 
+	if opts.ExcludeCloudFiles && !opts.Stdin && !opts.StdinCommand {
+		if runtime.GOOS != "windows" {
+			return nil, errors.Fatalf("exclude-cloud-files is only supported on Windows")
+		}
+		f, err := archiver.RejectCloudFiles(Warnf)
+		if err != nil {
+			return nil, err
+		}
+		funcs = append(funcs, f)
+	}
+
 	if opts.ExcludeCaches {
 		opts.ExcludeIfPresent = append(opts.ExcludeIfPresent, "CACHEDIR.TAG:Signature: 8a477f597d28d172789f06886806bc55")
 	}
diff --git a/doc/040_backup.rst b/doc/040_backup.rst
index 696b235cce6..a30d80402be 100644
--- a/doc/040_backup.rst
+++ b/doc/040_backup.rst
@@ -297,7 +297,8 @@ the exclude options are:
 -  ``--exclude-file`` Specified one or more times to exclude items listed in a given file
 -  ``--iexclude-file`` Same as ``exclude-file`` but ignores cases like in ``--iexclude``
 -  ``--exclude-if-present foo`` Specified one or more times to exclude a folder's content if it contains a file called ``foo`` (optionally having a given header, no wildcards for the file name supported)
--  ``--exclude-larger-than size`` Specified once to excludes files larger than the given size
+-  ``--exclude-larger-than size`` Specified once to exclude files larger than the given size
+-  ``--exclude-cloud-files`` Specified once to exclude online-only cloud files (such as OneDrive Files On-Demand), currently only supported on Windows
 
 Please see ``restic help backup`` for more specific information about each exclude option.
 
diff --git a/internal/archiver/exclude.go b/internal/archiver/exclude.go
index 6db62aa2025..c7dff0acb1a 100644
--- a/internal/archiver/exclude.go
+++ b/internal/archiver/exclude.go
@@ -316,3 +316,21 @@ func RejectBySize(maxSize int64) (RejectFunc, error) {
 		return false
 	}, nil
 }
+
+// RejectCloudFiles returns a func which rejects files which are online-only cloud files
+func RejectCloudFiles(warnf func(msg string, args ...interface{})) (RejectFunc, error) {
+	return func(item string, fi *fs.ExtendedFileInfo, _ fs.FS) bool {
+		recall, err := fi.RecallOnDataAccess()
+		if err != nil {
+			warnf("item %v: error checking online-only status: %v", item, err)
+			return false
+		}
+
+		if recall {
+			debug.Log("rejecting online-only cloud file %s", item)
+			return true
+		}
+
+		return false
+	}, nil
+}
diff --git a/internal/fs/stat_bsd.go b/internal/fs/stat_bsd.go
index 16506415306..95238be777c 100644
--- a/internal/fs/stat_bsd.go
+++ b/internal/fs/stat_bsd.go
@@ -32,3 +32,8 @@ func extendedStat(fi os.FileInfo) *ExtendedFileInfo {
 		ChangeTime: time.Unix(s.Ctimespec.Unix()),
 	}
 }
+
+// RecallOnDataAccess checks windows-specific attributes to determine if a file is a cloud-only placeholder.
+func (*ExtendedFileInfo) RecallOnDataAccess() (bool, error) {
+	return false, nil
+}
diff --git a/internal/fs/stat_unix.go b/internal/fs/stat_unix.go
index 723ac8b1978..70124658f44 100644
--- a/internal/fs/stat_unix.go
+++ b/internal/fs/stat_unix.go
@@ -32,3 +32,8 @@ func extendedStat(fi os.FileInfo) *ExtendedFileInfo {
 		ChangeTime: time.Unix(s.Ctim.Unix()),
 	}
 }
+
+// RecallOnDataAccess checks windows-specific attributes to determine if a file is a cloud-only placeholder.
+func (*ExtendedFileInfo) RecallOnDataAccess() (bool, error) {
+	return false, nil
+}
diff --git a/internal/fs/stat_windows.go b/internal/fs/stat_windows.go
index a2dfa5f6d5d..a62ddf87fd5 100644
--- a/internal/fs/stat_windows.go
+++ b/internal/fs/stat_windows.go
@@ -8,6 +8,8 @@ import (
 	"os"
 	"syscall"
 	"time"
+
+	"golang.org/x/sys/windows"
 )
 
 // extendedStat extracts info into an ExtendedFileInfo for Windows.
@@ -36,3 +38,20 @@ func extendedStat(fi os.FileInfo) *ExtendedFileInfo {
 
 	return &extFI
 }
+
+// RecallOnDataAccess checks if a file is available locally on the disk or if the file is
+// just a placeholder which must be downloaded from a remote server. This is typically used
+// in cloud syncing services (e.g. OneDrive) to prevent downloading files from cloud storage
+// until they are accessed.
+func (fi *ExtendedFileInfo) RecallOnDataAccess() (bool, error) {
+	attrs, ok := fi.sys.(*syscall.Win32FileAttributeData)
+	if !ok {
+		return false, fmt.Errorf("could not determine file attributes: %s", fi.Name)
+	}
+
+	if attrs.FileAttributes&windows.FILE_ATTRIBUTE_RECALL_ON_DATA_ACCESS > 0 {
+		return true, nil
+	}
+
+	return false, nil
+}
diff --git a/internal/fs/stat_windows_test.go b/internal/fs/stat_windows_test.go
new file mode 100644
index 00000000000..4f258d836c1
--- /dev/null
+++ b/internal/fs/stat_windows_test.go
@@ -0,0 +1,80 @@
+package fs_test
+
+import (
+	iofs "io/fs"
+	"os"
+	"path/filepath"
+	"syscall"
+	"testing"
+	"time"
+
+	"github.com/restic/restic/internal/fs"
+	rtest "github.com/restic/restic/internal/test"
+	"golang.org/x/sys/windows"
+)
+
+func TestRecallOnDataAccessRealFile(t *testing.T) {
+	// create a temp file for testing
+	tempdir := rtest.TempDir(t)
+	filename := filepath.Join(tempdir, "regular-file")
+	err := os.WriteFile(filename, []byte("foobar"), 0640)
+	rtest.OK(t, err)
+
+	fi, err := os.Stat(filename)
+	rtest.OK(t, err)
+
+	xs := fs.ExtendedStat(fi)
+
+	// ensure we can check attrs without error
+	recall, err := xs.RecallOnDataAccess()
+	rtest.Assert(t, err == nil, "err should be nil", err)
+	rtest.Assert(t, recall == false, "RecallOnDataAccess should be false")
+}
+
+// mockFileInfo implements os.FileInfo for mocking file attributes
+type mockFileInfo struct {
+	FileAttributes uint32
+}
+
+func (m mockFileInfo) IsDir() bool {
+	return false
+}
+func (m mockFileInfo) ModTime() time.Time {
+	return time.Now()
+}
+func (m mockFileInfo) Mode() iofs.FileMode {
+	return 0
+}
+func (m mockFileInfo) Name() string {
+	return "test"
+}
+func (m mockFileInfo) Size() int64 {
+	return 0
+}
+func (m mockFileInfo) Sys() any {
+	return &syscall.Win32FileAttributeData{
+		FileAttributes: m.FileAttributes,
+	}
+}
+
+func TestRecallOnDataAccessMockCloudFile(t *testing.T) {
+	fi := mockFileInfo{
+		FileAttributes: windows.FILE_ATTRIBUTE_RECALL_ON_DATA_ACCESS,
+	}
+	xs := fs.ExtendedStat(fi)
+
+	recall, err := xs.RecallOnDataAccess()
+	rtest.Assert(t, err == nil, "err should be nil", err)
+	rtest.Assert(t, recall, "RecallOnDataAccess should be true")
+}
+
+func TestRecallOnDataAccessMockRegularFile(t *testing.T) {
+	fi := mockFileInfo{
+		FileAttributes: windows.FILE_ATTRIBUTE_ARCHIVE,
+	}
+	xs := fs.ExtendedStat(fi)
+
+	recall, err := xs.RecallOnDataAccess()
+	rtest.Assert(t, err == nil, "err should be nil", err)
+	rtest.Assert(t, recall == false, "RecallOnDataAccess should be false")
+}